Today is the 40th anniversary of the announcement by President Nixon of a New Economic Policy, the so-called “Nixon Shock.”
President Nixon, faced with rising inflation and the threat of a recession, imposed wage-price controls, built a tariff barrier around the USA, and “temporarily” suspended the convertibility of the dollar into gold.
It was, by results, the greatest debacle in the history of American economic policy.
What followed was not pretty. All of the Nixon Shock policies, save one, were quickly unwound by his more economically astute senior policy makers. The tax credits expired. Wage-price controls were allowed to implode. The tariff wall came down faster than you can say, “Mr. Nixon, tear down this wall!” All were unwound, that is, except one.
The only vestige of the Nixon Shock remaining was, arguably, the most damaging and it is still doing great damage.
The gold window is still closed.
The gold standard has a long and colorful history.
For all of its imperfections what cannot be disputed seriously is that, notwithstanding its bungled handling from time to time, the record demonstrates that the gold standard is, as financier and philanthropist Lewis E. Lehrman (with whom this writer is professionally associated) has observed, the least imperfect of all monetary systems that have ever been tried in the laboratory of history.
Why is it the best? Yes, it has a distinguished pedigree going back to Sir Isaac Newton and even Copernicus, and was firmly embraced by America’s founders. But that’s not why. The reason is simple. The gold standard is one of the greatest engines of job creation and real prosperity known.
Nixon’s televised address to the nation broadcast on August 15, 1975 said, in relevant part:
"The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world.
In the past 7 years, there has been an average of one international monetary crisis every year...
I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.
Now, what is this action—which is very technical—what does it mean for you?
Let me lay to rest the bugaboo of what is called devaluation.
If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.
The effect of this action, in other words, will be to stabilize the dollar."
Well, to quote a favorite catchphrase of President Nixon: “Let me make one thing perfectly clear.”